Job Growth Surprised to the Upside in October

The Week Ahead

Retail sales growth will likely slow in October, weighed down by a drop in new car and light truck sales. Industrial production will likely grow more slowly as well, as cooler weather ends the demand for air conditioning that boosted utility output in September. Manufacturing output likely registered another solid monthly increase.

Producer price inflation is forecast to pick up year over year on higher prices of diesel and other refined petroleum products. Prices of these products usually fall in October, so seasonal adjustment will add to their monthly increases. Transportation and warehousing service prices will likely be higher in the report, too.

Existing home sales are forecast to fall to the weakest in more than two years in October as higher mortgage rates sidelined aspiring buyers. The median sale price of an existing home will likely rise faster year over year as moderately priced sales fall more than luxury sales—luxury homebuyers are less affected by mortgage rates. The listings-to-sales ratio, expressed as months of supply at October’s rate, is expected to reach the highest for this time of year in over a decade.

Last Week in Review

The job market strengthened in October, with payrolls up much more than expected. Employers added 165,000 jobs, and upward revisions to August and September raised the three-month average of payrolls growth to 137,000, above the 12-month trailing average of 74,000.

The unemployment rate edged back down to 4.1%, with mostly good details in the household survey. Employment rose 463,000 and the labor force rose 421,000, though it was still nearly a million lower than a year earlier. One weak spot was that most of last month’s increase in employment went into involuntary part-time work, raising the underemployment rate to its highest since July.

Earnings growth was a little better than expected but likely still lagged the October CPI, which will be released later this month.

Job growth over the last year was concentrated in healthcare and social assistance, an industry that is insulated from the business cycle and AI effects, and that sees demand rise as the population ages. Once they are seated in Congress, the Democrats want to restore funding for public healthcare programs that the 2025 fiscal bill cut, which would sustain healthcare job growth next year. Goods-producing and material-moving industries mostly added jobs over the past year, too, with good gains in durable goods manufacturing, construction, wholesale and retail trade, and transportation and warehousing. These industries are riding the coattails of the AI boom.

AI is clearly weighing on some types of white-collar jobs, though not all. Jobs fell year-over-year in information, education, and finance and insurance, but rose in professional and business services. Also, employment in computing and mathematical occupations continues to trend higher as a share of the workforce as AI makes workers in these occupations more productive. Separate data on job openings released before the jobs report show that AI has been a bigger drag on white-collar job openings than on the level of employment.

On the whole, the economy is registering healthy job growth and low unemployment, albeit unevenly distributed across industries and occupations. The Fed will be reassured by the October jobs report. Even so, they might refrain from a rate hike at their last decision of the year if the AI sell-off deepens.

Economic growth held up at a good clip at the start of the fourth quarter according to the bellwether ISM Purchasing Managers Indexes (PMIs). The ISM Manufacturing PMI rose to 55.5 from 54.5 in September, and the Services PMI slipped to a still solid 54.5 from 54.9. Both surveys reported modest increases in payrolls (stronger in manufacturing than in services), intense inflationary pressure from input prices, and healthy growth of new orders.